More than a quarter of Americans say that someone in their household is struggling to pay medical debt, according to a report from the Kauffman Family Foundation last year. Low-income and other uninsured people tend to be in this situation at higher rates. Many dealing with the crushing weight of medical debt aren’t those suffering from continuing, chronic illness—they’re people who have had a sudden or one-time illness.
Given the state of most Americans’ finances, this isn’t surprising. Most people are ill-prepared to sustain any type of financial shock, be it job loss, a car breaking down, or a sudden illness. And financial surprises—though they are, of course, surprises—occur all the time.
In a new report, the J.P. Morgan Chase Institute takes a look at how medical costs factor into household financial volatility. Researchers honed in on about 250,000 J.P Morgan checking accounts where they could categorize at least 80 percent of expenditures. They found that for median-income households—that is those who make around $57,000 a year—expenses fluctuated by an average of 29 percent, or $1,300 from month-to-month.
The study’s authors took a look at what they considered extraordinary medical expenses, defined as those expenses that were both large (more than $400 and more than 1 percent of annual income) and unusual (falling more than two standard deviations outside of a household’s normal monthly spending). According to the report, about 40 percent of middle-class and older families faced an extraordinary expense of $1,500 or more due to a medical expense, taxes, or a car problem during a 12-month period. Around 16 percent of middle-income households had one large medical expense during a year-long period, and around 39 percent experienced a medical expense during a three year period. And these expenses tended to show up at the same time that households saw an uptick in income.
On the one hand, that’s good news, showing that many medical expenses occur in months where they are not as financially burdensome as they might be during other times of the year. But in reality, that’s probably because people are putting off necessary medical treatment until they experience a windfall. J.P. Morgan’s data backs up this theory, showing that many medical expenses coincide not only with an increase in income, but specifically, an increase in monthly income due to a tax refund. But those refunds, by and large, don’t actually cover the entire cost of medical expenses incurred. In fact, within 12 months of a large medical expense, most families hadn’t financially recovered.
These numbers are troubling but not surprising. America has long struggled with providing affordable health care, or any health care at all. And while some may be able to delay procedures until a tax refund hits, medical emergencies wait for no one. As my colleague Olga Khazan has written, medical debt is the number one cause of personal bankruptcy in the U.S., and in 2014, around 40 percent of Americans had debt related to illness.
There’s even more cause for concern about the cost of medical expenses now, as President Donald Trump and Republicans in Congress work to rollback the Affordable Care Act. While not as affordable as some had hoped, the Act did provide coverage to millions of Americans who now face uncertain futures when it comes to medical coverage and the costs associated with some GOP proposals, which would rely on the use of health savings accounts and comparison shopping to defray medical costs. And that’s a system that comes with its own set of economic challenges. The plan would include individuals putting away money—likely with some subsidization from the government—while also enrolling in health-care plans that include a high deductible.
The theory is that Americans having to spend a significant amount of their own saved money up front will encourage them to shop around for better deals on health care. But sometimes that means that patients forgo medical care while waiting for their accounts to build up, and shopping for medical services can be an opaque and tricky process. What’s more, one study found that the high-deductible approach meant that sometimes, instead of comparison-shopping for services, individuals just opted to get less medical care, including the types of preventative care that could result in fewer medical emergencies, and financial shocks, later on.